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Monday, June 19, 2017

Are Conditions Ripe for Oil and Gas Mergers?

From Forbes:

The sell-off of oil and gas exploration and production stocks has been brutal. Exchange-traded funds that specialize in the sector have fallen around 10% to 20% this year, versus an 8% uptick in the market overall. Blame oil prices, which have slid despite members of the Organization of the Petroleum Exporting Countries agreeing last month to keep production cuts in place for another nine months.

In a note last week, analysts at Tudor, Pickering, Holt & Co. said prices of exploration and production stocks sat at 55% of their expected targets versus 58% just a month ago. Raymond James said both the Bollinger Band and Relative Strength Index signals within its proprietary timing model breached oversold levels last week for the first time in five weeks, "indicating a strong potential buy signal."

With stock prices down so much, it might be a good time for the long-term investor to jump in. Could it also be a good time for some corporate mergers?

There are already early indications that it is. Penn Virginia Corp., which focuses on South Texas' Eagle Ford shale, has hired investment bank Jefferies LLC to advise it on strategic alternatives to enhance shareholder value, including a possible sale, Reuters reported Monday. Stone Energy Corp., which explores for oil in the Gulf of Mexico, is also looking for a buyer with Petrie Partners LLC assisting it. Both companies emerged from bankruptcy in the last eight months and are owned by hedge funds that invest in distressed debt.